FDI in multi-brand retail set to get 100% backing

Deepshikha Sikarwar, ET BureauMay 25, 2010, 04.37am IST

NEW DELHI: The commerce and industry ministry is likely to propose 100% foreign direct investment (FDI) in multi-brand retail, opening the doors to the likes of Wal-Mart and Tesco, but will suggest stiff local sourcing requirements and mandatory investments in backward linkages.

"We are preparing the paper that will be placed for public debate in some time," a senior official of the department of industrial policy and promotion (Dipp), the nodal body for foreign investment policy, told ET.

Though the earlier view within the department was to keep the FDI limit at 51%, same as in single-brand retail, it has veered around to keeping it much higher and even pegging it at 100% to have an intense debate on the subject, he added.

A final decision on the proposed cap will be taken after deliberations with the consumer affairs ministry, the nodal department for retail, he said.

Interestingly, in another paper on FDI in defence, the department has proposed foreign investment up to 74%. The paper on retail will be the second in a set of six discussion papers proposed to be put out by Dipp.

The paper is also expected to make it mandatory for big multi-brand foreign retailers to create a back-end cash-and-carry for small shopkeepers, giving them benefit of scale on the sourcing side.

"The idea is that big multi-brand retail outlets should enable growth of small retailers and not threaten their existence," the official said.

Mandatory domestic procurement will ensure improved returns for farmers while strong back-end linkages will contribute to the development of food processing and cold chains in the country.

The suggestions are consistent with the UPA government's emphasis on technology upgradation and flow of investments into the farm sector.

The lack of cold chains in the country leads to wastage of about 40% of the farm produce, causing a loss of about Rs 50,000 crore annually, according to industry estimates.

To further prevent any danger to small shopkeepers, particularly in small cities, MNC retailers will be allowed to set up stores only in cities with population upwards of one million, as per the discussion paper being given finishing touches by Dipp. They will also have to have stores with a minimum built-up area as the government wants to ensure that these lead to employment generation.

Both the Left and BJP are completely opposed to opening up of multi-brand retail, a sector that employs millions, in the country. A parliamentary standing committee headed by BJP leader Murli Manohar Joshi had, in fact, recommended a complete ban on FDI in retail. However, the UPA government, sans the Left, seems more open to the idea of opening up multi-brand retail to FDI.

Finance minister Pranab Mukherjee had in his 2010-11 budget speech said: "... The second element of the strategy relates to reduction of significant wastages in storage as well as in the operations of the existing food supply chains in the country. This needs to be addressed.